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In the third quarter, we saw some interesting trends emerging in the local industrial real estate market that appear to be just the beginning of a bigger movement yet to come.

Five new buildings have already been delivered so far in 2016 and there are 11 more buildings under construction with a total RBA of 4,820,849 sqft of space. Furthermore, much of this space is currently unoccupied which will have a big impact on net absorption and vacancy rates, among other things.

Let’s take a look at the most important trends we saw take place in Q3 2016 in the Central Pennsylvania industrial real estate market followed by our analysis of the effect this will have on the market.

Select Year-to-Date Deliveries:

Five of the top 15 Select Year-to-Date Deliveries in the Greater Philadelphia market took place in Central PA. Of these five, two were delivered in Q1 and three were delivered in Q2. None were delivered in Q3. For a quick recap, here are the square footage and occupancy of the buildings that have been delivered in the Central PA market so far this year:

A large construction project broke ground this quarter in Central PA. United Business Park, located off Interstate 81 in Southampton Township plans to add 1,491,600 sqft of industrial space to the market by Q2 2017. This is one of two distribution centers that combined will offer about 2.7 million sqft of space in Franklin County. New Jersey-based Matrix Development Group is among the most active industrial developers in Pennsylvania and New Jersey. Sheetz will be the first tenant in this space in this space and they hope to offer other large companies like Proctor and Gamble who want to efficiently reach the Northeast and Mid-Atlantic populations.

Select Top Sales

Four of the nine Select Top Sales in the Greater Philadelphia Market between July 2015 and September 2016 have taken place here in Central PA. Though none have taken place specifically in Q3, here is a quick recap of the building that have been sold during this time:

This quarter, net absorption fell drastically from 164,650 sqft (Q2) to 28,978 sqft. Though still in the black, this is the lowest number we’ve seen for net absorption since Q2 2013 when it dipped into the red at negative 683,020 sqft. Only one building was delivered this quarter with an RBA of 165,800 sqft which is currently not occupied. Additionally, 11 buildings are under construction with a total RBA of 4,820,849 sqft of new space coming to the market soon. From what we’ve seen in the Top Under-Construction properties in the Q3 CoStar report, many of these are 0% occupied at this time. Should more unoccupied space hit the market, we could expect to see net absorption decrease even further, possibly dipping into the red.

Vacancy & Rental Rate:

The vacancy rate remained the same this quarter at 5.4% after its big increase from Q1 to Q2 where it jumped 0.6% to the highest rate we’ve seen since Q4 2014. Given the projects under construction, we might expect this to increase further in the coming quarters as these properties are delivered. While vacancy stayed steady, the quoted rental rate decreased by 1 cent to $4.29 per square foot.

Our Summary:

Construction activity continues to be one of the prime drivers of the Central Pennsylvania industrial market. Speculative construction currently accounts for 70.5 percent of all construction projects. New construction has created opportunities for tenants in a market that has otherwise been difficult to enter. As developers noticed requirements are larger than quality options in the market, speculative projects broke ground to meet the needs of the active requirements.

Moving forward for the remainder of 2016, speculative construction will continue to exceed build-to-suit projects. While demand continues to be strong, a large volume of construction has delivered vacant this year, likely causing market conditions to shift to tenant favorable by 2018 due to large increases in Class A inventory and pending economic slowdown.

Based upon the data for Central PA’s industrial real estate market in Q3 2016, what do you find to be most interesting or important? Share your insight by commenting below!

At first glance, it didn’t appear like Q3 2016 held any exciting news for Central Pennsylvania’s office real estate market. No top sales, no major projects delivered and only a couple projects under construction. But as we dug a little deeper into the numbers, we found that this quarter claimed recent record highs for RBA and quoted rental rates, as well as a record low for vacancy rate.

Together, these trends tell us that good things are happening within the local office real estate market, with numbers that continue to indicate growing demand. Let’s take a closer look at the highlights from Q3 2016 which we can use to analyze the current market and predict future trends.

Select Year-to-Date Deliveries:

CoStar’s list of Select Year-to-Date Deliveries includes two properties in Central Pennsylvania. Though none of these were delivered in Q3, it’s worth recapping that activity that has taken place so far in 2016. The Sterling Place Corporate Center in Mechanicsburg was delivered in Q2 with 129,000 square-feet of fully leased space. At 440 Walker Road, Chambersburg, 9,199 square-feet of space was delivered in Q1. Only 63% was preleased.

Top Under-Construction Properties:

Although no new properties were delivered in Q3, we expect to see at least one new office building delivered to the Central PA market in Q4. This property, located on Hogestown Road in Mechanicsburg, will add 129,000 square-feet of office space. It is 100% preleased.

Absorption and Demand:

Net absorption dropped this quarter by 70,917 square-feet. There has been a lot of fluctuation in net absorption from quarter to quarter and this continues in line with the trend. Total RBA did not budge from last quarter which was 54,902,624 square-feet. This maintains the recent record high that we reached in Q2, the highest RBA in Central PA since prior to Q4 2012.

Vacancy & Rental Rate:

Vacancy decreased again this quarter to a recent record low of 6.0%. This is the lowest vacancy rate we have experienced since prior to Q4 2012. As might be expected with a decrease in vacancy, we also experienced an increase in the quoted rental rate. Now at $17.30 per square-foot, this is $0.04 higher than last quarter and only $0.03 less than the recent record high of $17.33 we saw in Q1 2016.

Our Summary/Analysis:

All in all, Q3 brought positive news for Central Pennsylvania’s office real estate market. An increase in demand for space is driving down vacancy and driving up the price per square foot. New properties are at least 50%, if not 100%, preleased before they even hit the market. With another 100% preleased property expected to be delivered next quarter, we predict that 2016 will have a strong finish, indicating a healthy and growing office market.

Based upon the data for Q3 2016, what do you find to be most interesting or important? Share your insight by commenting below!

The Central Pennsylvania industrial real estate market is an active place to be right now! In second quarter 2016, three new properties were delivered with three more under construction. Most interestingly, none of this new space is preleased. Both vacancy and rental rates continue to rise to some of the highest numbers we have seen in recent quarters.

What do these trends tell us about the health of the industrial market and the local economy? Let’s take a closer look at the highlights from second quarter 2016.

Select Year-to-Date Deliveries:

The Lebanon Valley Distribution Center, located at 139 Fredericksburg Road, Fredericksburg was delivered this quarter with an RBA of 874,126 square-feet that is not preleased. Another Central Pennsylvania building delivered in second quarter 2016 is the property at 192 Kost Road, Carlisle. It has an RBA of 422,200 square-feet and is not preleased. Third, LogistiCenter 78-81 delivered another 405,000 square-feet of unleased space this quarter. Combined, this is 1,701,326 square feet of new, unleased industrial space delivered in second quarter 2016.

Top Under-Construction Properties:

In addition to the buildings delivered to the market this quarter, there are three more under-construction properties in Central Pennsylvania that will be delivered in the coming year. The Eden Road Logistics Center will be delivered in fourth quarter 2016. It has an RBA of 754,881 square-feet and is 0% preleased. Trade Center 44 is also expected to deliver in fourth quarter 2016. This property has an RBA of 620,000 square-feet and is 0% preleased. Finally, Crossroads Logistic Center is expected to deliver in first quarter 2017 with an RBA of 398,250 square-feet. It is also 0% preleased.

Select Top Sales:

Three of the nine Select Top Sales between April 2015 and June 2016 took place in Central Pennsylvania. Coming in at number one on the list is Park 81 in Shippensburg. This 1,495,720 square-foot facility sold for $83,000,000 to CBRE Global Investors, LTD. Number five on the list is 100 Louis Parkway in Carlisle. This 400,596 square-foot facility sold for $28,850,000 to Industrial Property Trust. The final Central Pennsylvania property on the list, ranking number seven, is located at 1225 S. Market Street, Mechanicsburg. With 596,703 square-feet, this property sold for $21,350,000 to Allen Distribution.

Absorption and Demand:

Net absorption once again dropped this quarter to 69,303 square-feet. If this trend does not soon reverse, we are inching our way closer to a negative net absorption that we have not seen since second quarter 2013. Net absorption has been declining each quarter since reaching a peak of 2,382,561 square-feet in second quarter 2015. Though this quarter was not the drastic decrease we have seen in most recent quarters, it is still contributing to the downward trend.

Vacancy:

Vacancy has increased this quarter, rising to 6.0%. This is the highest vacancy rate we have seen since second quarter 2014. After reaching a low of 4.5% in second quarter 2015, vacancy has continued to rise steadily.

Rental Rate:

The quoted rental rate is also on the rise. Second quarter 2016 ended with a rate of $4.30 per square foot. This is the highest rate we have seen since prior to third quarter 2012. It was only midway through 2015 when we saw this rate exceed $4.00 and it has been steadily rising ever since.

Our Summary/Analysis:

With so much new, unleased space entering the Central Pennsylvania industrial real estate market right now, it’s obvious why net absorption continues to decrease. By first quarter 2017, another three new, unleased buildings will be completed which leads us to predict that a negative net absorption in in our not too distant future. Following this trend, vacancy rates will continue to rise as well.

Where it gets interesting is even with all of this new, unleased space and vacancy rates on the rise, second quarter 2016 experienced the highest quoted rental rate we have seen in recent years. What this tell us is that the demand for industrial space in Central Pennsylvania continues to outpace supply.

It can be difficult to see the signs that you need new office space for your business. Maybe it’s the fear of change or the discomfort of moving all of your files, equipment and employees to a new office. Whatever the hesitation, the consequences of not moving to a better functioning space can be far worse than the temporary inconvenience of relocating.

Take a look at these five signs that you might need new office space and think about how they relate to your own work environment.

While it may seem fun and hip to have your employees work in one big open space together, keep in mind that people need privacy, just as much as they need community, to get work done. If your office space lacks a private area for holding meetings or making phone calls – or even just a space where employees can go to work in silence for a few hours, it’s time to look for an office that provides a little more privacy.

It doesn’t reflect your brand or company culture

Are you an innovative tech startup, but you’re working in an office space that looks like it belongs to a law firm from the 1950’s? When your work environment contrasts with your brand and company culture, it can have a negative impact on your employees. It’s important to work in a space that complements the brand you’re working to create. This is a subconscious reminder to employees of the business’s core values you want them to represent in everything they do.

There’s no room for growth

If you’re a business that has plans to grow your operations and add to your number of employees, yet you don’t have room for one more desk, let alone a filing cabinet, it’s time to start looking for new office space! Don’t wait until you are desperate to move, or you may make a desperate decision that isn’t in your best interest. Start looking for more space preemptively and work with a qualified commercial real estate broker who can help you negotiate the best deal possible.

You’re paying too much

Finally, if you’re dumping too much of your profits into your office lease, it’s time to look for a more financially responsible work space. Sure, a pricy loft with views of the Harrisburg Capitol is great for your ego, but it’s terrible for the sustainability of your business. This is a red flag that it’s time to work with a tenant representative who can show you a wide variety of attractive options while staying within your budget.

Can you relate to one or more of these signs? Ask us your office space related questions and we will personally respond with our expert advice!

As the owner of Omni Realty Group, Mike Kushner has been exclusively practicing Tenant Rep/Buyer Agency since 1998, when he first established the company. Now, with almost 20 years of experience under his belt, Mike shares his top six most valuable lessons learned from his career as a tenant representative/buyer agent.

Everyone Deserves to be Treated with Respect

This lesson is so simple, yet so often overlooked. Any successful business owner, regardless of industry or size, should treat everyone they encounter with respect. The bottom line is that you never know how they may impact your business in the future. Employees, vendors, customers and anyone else can all serve as walking testimonials for your business – and you. Give them every reason to talk about how great you are to work with. Don’t risk having someone out there badmouthing their experience with you because of something that could have been prevented by treating them with a little more respect.

Never Take Your Reputation for Granted

Businesses balance on their reputation of service and the ethics and integrity of how they provide that service. I have always operated my business with an important rule in mind: We are the reputation we create. There’s really no way around it; you are the only one who can make or break your own reputation. Make every effort to protect it!

Do What You Say You Are Going to Do

Few things can destroy the integrity of the relationship that exists between service provider and customer as quickly as non-performance. Fail to deliver, and the customer will lose trust and become justifiably skeptical of future commitments. Furthermore, they will quickly move on to someone who will deliver

We Are Always Learning

Every day brings new experiences that broaden my understanding of this wonderful industry that is my livelihood. Keep your eyes and mind open to opportunities to learn. These can come in unconventional ways and at unexpected moments – don’t overlook them!

Not only is it greedy and unfair, it’s insulting to the tenant or buyer to think that they aren’t smart enough to eventually realize what’s going on. The bottom line is that listing or selling brokers are salesmen. They get paid more if you lease in their listed building and are therefore incentivized to get you to do so. If you work with anyone who is not an exclusive tenant rep, you are not likely to see all the options truly available to you.

Business Should Review Their Lease Far More Often Than They Do

Most businesses only look at their leases every five years (or right before renewal). The truth of the matter is that real estate occupancy cost is a major expense for any business and should be reviewed on a regular basis, at least annually. Furthermore, the terms of your lease should provide for a lease audit to allow you to ensure that expenses being passed through to you, the tenant, are fair and accurate.

In short, working with a commercial real estate broker should be a pleasant and stress-free experience. If it’s not, you’re likely working with the wrong broker who isn’t putting your interests first. If nearly 20 years of experience has taught me anything, it’s that the people – not the property – are the priority.

Which of these lessons do you feel is the most important for running a successful and respected business? Share your opinion by commenting below!

2016 has already proven to be an interesting year for Central Pennsylvania’s retail real estate market. A total of seven new buildings were delivered this quarter alone with a combined RBA of nearly 150,000 square-feet of space – only some of which is occupied. As a result, this new space has impacted vacancy and rental rates as well as net absorption. Here is a more detailed look at some of the highlights from Q1 2016 for Central Pennsylvania retail.

Select Year-to-Date Deliveries:

Seven new buildings were delivered to the Central Pennsylvania retail market in Q1 2016. Six of these properties made it to CoStar’s list of the Philadelphia Market’s Top 15 Select Year-to-Date Deliveries. They are as follows:

Number 2 on CoStar’s list is the building at I-81 and Walker Road with an RBA of 109,237 square-feet that is 12% occupied.

Number 7 on CoStar’s list is the building at 968 Norland Avenue with an RBA of 10,500 square-feet that is 71% occupied.

Number 10 on CoStar’s list is the building at Cedar Crest Crossing with an RBA of 7,310 square-feet that is 100% occupied.

Number 11 on CoStar’s list is the building at 2101 Strickler Road with an RBA of 7,043 square-feet that is 0% occupied.

Number 13 on CoStar’s list is the building at Donegal Square with an RBA of 6,108 square-feet that is 0% occupied.

Number 15 on CoStar’s list is the Chik-Fil-A located at Chambersburg Square with an RBA of 5,000 square-feet that is 100% occupied.

Absorption and Demand:

After hitting a low of negative 152,049 square-feet in first quarter 2015, net absorption has been on a steady climb. However, this trend came to an end this quarter with a significant decrease in net absorption, dropping from 281,270 square-feet (Q4 2015) to 105,984 square-feet (Q1 2016). The seven new buildings, with a combined RBA of 149,898 square-feet, most certainly had an impact on the market’s ability to absorb the new space. It’s also worth noting that Central Pennsylvania comes in second, only behind suburban Philadelphia, in year-to-date net absorption and deliveries.

Vacancy:

This quarter the vacancy rate barely budged, increasing from 4.8% to 4.9%. What’s worth noting is that this is one of the very few times we have seen the rate increase during a nearly four-year-long trend of decreasing rates. After hitting a high of 6.0% in the latter part of 2012, rates hit their lowest number last quarter at 4.8%. Could this quarter’s increase be the start of an ongoing trend of increasing rates? The seven new buildings delivered to the market this quarter would indicate yes, which brings us to our next area of focus.

Rental Rates:

Lastly, the quoted rental rates have increased by $0.05, from $11.83 last quarter to $11.88 this quarter, returning them nearly to where they were in Q3 2015. Over the past four years, Central Pennsylvania’s rental rates for retail space have increased and decreased without much consistency. It will be interesting to watch these numbers throughout the rest of the year.

Our Summary/Analysis:

With nearly 150,000 square-feet of new retail space dumped into the market this quarter, Central Pennsylvania has responded to these changes well – all things considered. The vacancy rate moved just ever so slightly and rental rates actually increased, proving the market has a demand for this new space. Further proof is that Central Pennsylvania ranks second to suburban Philadelphia in year-to-date net absorption and deliveries. We should keep a keen eye on how the new construction will continue to impact our local businesses and economy as there is sure to be additional movement and emerging trends!

What trend this quarter do you find most noteworthy? Share your thoughts by commenting below!

You are likely aware that there are different classifications of office space, specifically Class A, B and C. But what qualities determine the letter associated with any given commercial property? Is it the location, the layout, the finishes or the amenities?

The answer is it has to do with all of these things! The classification of office space is very important to keep in mind both as a real estate investor and as a business tenant. Your budget and use of the space will help determine the class best suited for your needs. When looking to rent or buy commercial real estate, you can save a lot of time and frustration by teaming up with an experienced tenant representative or buyer agent who can advise you on the most appropriate class.

Here’s an overview of the pros and cons of each of the three classifications of office real estate!

Class A

Overview: As you might expect by the name, Class A office space is considered extremely desirable investment-grade properties and command the highest rents or sale prices compared to other buildings in the same market. These buildings are in prime locations with efficient tenant layouts that function as well as they look. Some Class A office space is an architectural or historical landmark designed by prominent architects. Simply put, Class A office space is for the renter or investor who wants the highest level of quality and convenience and is willing to pay a premium for it.

Pros: With Class A office space, you know you’re getting the best – the best location, layout, finishes and amenities. You are likely to have other desirable businesses as your “neighbors” in the same building which can increase the value of your space. You can also rest assured knowing the space will be well maintained for the premium price, meaning less headaches or inconveniences for you in the long run.

Cons: This class of space comes with the highest rent or sale prices. You may also have less negotiation power since the space you’re getting is usually in top condition with every advantage to drive the price high – including many businesses who are eager to jump on the space if you don’t.

How It Relates to the Local Market: The Central Pennsylvania submarket has 93 existing buildings that are classified as Class A. Combined, that’s a total RBA of 8,820,990 square-feet. After submarkets Philadelphia CBD/Non-CBD and Southern New Jersey, Central PA is the submarket with the lowest vacancy rate in CoStar’s Philadelphia Office Market Area, coming in at 9.9% in first quarter 2016. The average asking rental rate for this the first quarter is $19.78 which is the third lowest rate in the market area.

Additionally, it’s worth noting that just because two buildings are both considered Class A, does not mean they are equal. This is all the more reason to work with an experienced tenant representative who can help you find the best space at the best price to meet your needs. Just take a look at the example of these two buildings in the Central PA submarket below. Both are Class A, but for which property would you be willing to pay the premium price?

Overview: Class B office space is a step down from Class A space in its location, design, quality and amenities. As such, this space carries a lower price tag. Class B buildings offer utilitarian space without special attractions and have “ordinary” design, compared to Class A. These buildings typically have average to good maintenance, management and tenants. They are less appealing to tenants than Class A properties, and may be deficient in a number of respects including floor plans, condition and facilities. They lack prestige and must depend chiefly on a lower price to attract tenants and investors.

Pros: Since Class B office space is “middle of the road” for the classes, you have the advantage of getting a better work environment than Class C for a price that’s less expensive than Class A. As an owner or investors of Class B space, you’re likely to find many tenants whose budget and expectations align best with Class B space.

Cons: On the flip side, Class B space has several drawbacks to consider for the cost savings. It’s not likely to be in as prime of a location as Class A nor have the same amenities and quality of finishes. You may find the layout to be less convenient and the building and its other tenants to be “less prestigious” than Class A.

How It Relates to the Local Market: The Central Pennsylvania submarket has 1,303 existing buildings that are classified as Class B. Combined, that’s a total RBA of 28,378,254 square-feet. With a vacancy rate of 7.7% in first quarter 2016, it is the lowest of any submarket in CoStar’s Philadelphia Office Market Area though it’s average asking rental rate is only the third least expensive at $17.36, coming in higher than I-81 Corridor and Southern New Jersey. If you find it overwhelming to understand and interpret the local market trends, a tenant representative/buyer agent can guide you with knowledge and expertise. He or she knows how these trends impact demand and pricing and can use it as leverage to help you negotiate the best deal.

Here are two examples of Class B office space so you can see the variations within a single class.

Class B Office Space located at 200 N. Third St., Harrisburg, PA

Class B Office Space located at 204 S. 3rd St., Boiling Springs, PA

Class C

Overview: Class C office space describes buildings that generally qualify as no-frills, older buildings that offer basic space and command the lowest rents or sale prices compared to other buildings in the same market. Such buildings typically have below-average maintenance and management, and could have mixed or low tenant prestige. Things like inferior elevators, mechanical or electrical systems help reduce the cost, but also increase the possible headache for tenants. These buildings lack prestige and must depend chiefly on a lower price to attract tenants and investors.

Pros: The biggest benefit of Class C office space is its low price in comparison to Class A and B. If you’re looking for a simple and understated work space with zero frills, Class C might be a great option to help you stick within your budget while still gaining the space you need to grow your business.

Cons: When looking at Class C space, you need to keep your expectations in check. This is the lowest of the classes and likely to be the least desirable work conditions as well. There may be things that need obvious repair, the building and its location may leave a lot to be desired and your neighboring tenants are not likely to be prestigious businesses. Having said that, sometimes you can get lucky and find a Class C space in an area that still has “good bones” and a lot to offer the right business. It’s always important to keep an open mind, especially when working with a limited budget!

How It Relates to the Local Market: The Central Pennsylvania submarket has 2,162 existing buildings that are classified as Class C. Combined, that’s a total RBA of 16,600,363 square-feet. With a vacancy rate of 5.1% in first quarter 2016, Central PA has the second to lowest vacancy rate in CoStar’s Philadelphia Office Market Area. It’s average asking rental rate for the first quarter is $14.99 which is the second lowest only to I-81 Corridor.

Central Pennsylvania is in the midst of a new construction boom when it comes to industrial real estate. Last quarter, eight new buildings were delivered to the market and this quarter, we see another five new properties reach completion. Additionally, five more buildings are under construction and set to be delivered later this year. Combined, this is millions of square-feet of space, with much of it not yet occupied or preleased.

How is this new construction trend impacting the local market? Moreover, what can it tell us about the health of the local economy? Here is summary of the data from first quarter 2016 for the Central Pennsylvania industrial submarket that provides insight to help answer these questions.

Select Year-to-Date Deliveries:

Five of the top nine Select-Year-to-Date Deliveries for first quarter 2016 are located within the Central Pennsylvania submarket. Coming in at number two on the list is 575 Old Forge Road. This property has an RBA of 500,000 square-feet and is 0% occupied. Number four on the list is the Susquehanna Logistics Center with an RBA of 4323,300 square-feet and is also 0% occupied. The third of the five Select-Year-to-Date Deliveries in Central Pennsylvania comes in at number seven on the list. It is located at 1165 Strickler Road with an RBA of 40,000 square-feet and is 100% occupied. Next, at number eight on the list, is 551 Manchester Court with an RBA of 36,000 square-feet and is 100% occupied. Finally, at number nine is 211 Piper Circle with an RBA of 26,825 square-feet and 45% occupied.

Select Top Under Construction Properties:

The incredible amount of new space being pumped into the Central Pennsylvania industrial real estate market is only going to continue to increase as five more properties are under construction and expected to be delivered in 2016. These properties include: Lebanon Valley Distribution Center with an RBA of 874,126 square-feet; Eden Road Logistics Center with an RBA of 755,421 square-feet; Trade Center 44 with an RBA of 620,000 square-feet; 192 Kost Road with an RBA of 422,400 square-feet; and LogistiCenter 78-81 with an RBA of 405,000 square-feet. All five properties are 0% preleased.

Absorption and Demand:

Net absorption has dropped significantly since last quarter. Previously at 1,730,592 square-feet in fourth quarter 2015, it ended first quarter 2016 at 123,946 square-feet. Contributing to this trend is the delivered inventory of five buildings this quarter and eight buildings last quarter with a combined impact of 3,904,745 square-feet of new space in six short months!

Vacancy:

This quarter, the vacant square footage jumped from 13,451,560 to 14,353,739. The vacancy % jumped from 5.3% to 5.6%, which is the highest we have seen it since fourth quarter 2014. Compared to the vacancy % that was in the 6’s and 7’s prior to second quarter 2014, this is still moderate to low, but it is showing a trend of increasing over the last year.

Rental Rates:

The quoted rental rates have increased by $0.11, from $4.11 last quarter to $4.22 this quarter. This is the highest quoted rental rate the Central Pennsylvania industrial submarket has seen since prior to second quarter 2012.

Our Summary/Analysis:

Although net absorption dropped significantly and large amounts of space continues to be added to the market, I believe that the demand for space will continue to soar. The whole chain of moving goods, from producer to consumer, is being upended by consumer shifts toward e-commerce, to the advantage of wholesalers and warehouse space, generally. Other demand drivers are also firing strongly, in concert with the continuing economic recovery. As with other property sectors, demand for space naturally rises with GDP growth and especially job growth.

But industrial demand depends on two factors, in addition to retail demand: trade and housing construction. Warehouses benefit from housing construction as home builders need large spaces in which to store their materials. Housing stats are not at the level of the mid 2000’s. But volumes have recovered nicely since the recession, with the annual rate now up to 1.1 million units, twice the rate at the depth of the recession and finally approaching the levels of the mid 1900’s prior to the housing boom.

And trade is up, building on a long upward trend for both imports and exports dating back at least 50 years due to greater trade liberalization. Exports and imports combined have tripled their share of our nation’s Gross Domestic Product, from less than 10% in the 1960’s to almost 30% now. Our growing trade means that an increasing share of products that we buy and sell, end up in warehouses at some point in their journey from producer to consumer. Putting all these factors together – rising trade, increasing housing construction, and the shift to e-commerce, all in the context of at least moderate economic growth – provide fuel for strong tenant demand for warehouse space.

How do you anticipate the boom in new industrial real estate space will impact the local market and economy? Share your insights by commenting below!

The New Year is well under way, but before we get too far into 2016, it’s worth taking a look back at the largest commercial lease deals that occurred in the Central Pennsylvania market in 2015. These deals represent significant trends and help predict where the market may be headed in future quarters.

Each sector within the commercial real estate market – retail, office and industrial – experienced a unique trend worth noting. Without further ado, let’s take a closer look at the largest lease deals that occurred in Dauphin, Cumberland, York, Lancaster and Lebanon counties for the retail, office, and industrial markets in 2015.

Largest Retail Lease Deals

1. Community Aid leased the first floor of a Class B retail space located at 25-31 Rohrerstown Road, Lancaster from Urban Edge Properties. The 40,712 square-foot lease was signed in January 2015 and began in June 2015.

2. Blue Mountain Thrift Store leased the first floor of a Class B retail space located at 2-22 North Londonderry Square, Palmyra from Lavipour & Company. The 38,669 square-foot lease was signed in May 2015 and began in August 2015.

3. HomeGoods leased a Class B retail space located at 5084-5098 Jonestown Road, Harrisburg from Cedar Realty Trust, Inc. The 31,436 square-foot lease was signed in June 2015 and began in November 2015.

4. Tractor Supply leased a Class B retail space located at 100 Noble Blvd, Carlisle from Broad Reach Retails Partners, LLC. This 30,173 square-foot lease was signed in September 2015 and began in February 2016.

Two of the top four largest retail lease deals of 2015 were thrift stores and HomeGoods is also a discount retailer, making 75% of the top leases related to discount shopping. Additionally, fourth quarter 2015 finished strong with a net absorption of 227,275 square-feet. Finally, the vacancy rate dipped below 5% (4.9%) for the first time since before the “Great Recession.” Combined, these trends tell us that the local market is recovering and absorbing 2nd generation space specifically for thrift-type retailers that budget-conscious consumers tend to prefer.

Largest Office Lease Deals

1. Pennsylvania College of Health and Science leased a specialty office space located at 850 Greenfield Road in Lancaster. This 213,000 square-foot lease was signed on January 2015 and began on January 2016.

3. United Concordia Companies, Inc leased a Class A office space located at 4401 Deer Path Road, Harrisburg from DeSanto Realty Group. This 102,000 square-foot lease is a renewal and began on June 2015.

4. P.E.M.A. leased a Class A office space located at 2605 Interstate Drive, Harrisburg from Corporate Office Properties Trust. This 86,660 square-foot renewal was signed on June 2015 and began on January 2016.

Two of the top four largest office lease deals in 2015 were renewals (United Concordia and P.E.M.A). Additionally, the fourth quarter was a lackluster, producing only 15,921 square feet of net absorption. Finally, the vacancy rate is rising slightly. Combined, these factors tell us that the office market is not performing as strong as the other commercial sectors. More than half of the largest leases were from existing businesses, as opposed to new businesses moving into the area. A low net absorption and rising vacancy rate also tells us the market still remains slightly volatile.

Largest Industrial Lease Deals

1. Chew.com LLC leased a Class B industrial space located at 40 E. Main Street, New Kingston from SK Realty Management. This 600,000 square-foot lease is a renewal and began on January 2015.

2. A business (not named) leased a Class A industrial space located at 950 Centerville Road, Newville from KTR Capital Partners LP. This 570,000 square-foot new lease was signed in May 2015 and began on November 2015.

3. Unisource Worldwide Inc. leased a Class B industrial space located at 4501 Westport Drive, Mechanicsburg from I & G Direct Real Estate 33K LP. This 502,446 square-foot lease is a renewal and began on February 2015.

Central Pennsylvania maintains its role as a dominant player among logistic markets. Industrial buildings will continue to set new records for scope, as distribution centers greater than one million square-feet become more prevalent. Last year, the local industrial market experienced a total of 7.8M square-feet of net absorption and 3.5M square-feet of space was under construction at close of 2015. We can expect continued growth throughout 2016, which is great news for businesses and professionals impacted by local industrial real estate.

What largest lease deal in Central Pennsylvania in 2015 do you find to be the most impressive or telling of future market trends? Share your insights by commenting below!

2015 continued to be a prosperous year for industrial real estate. Locally here in Central Pennsylvania, the market maintained the burst of growth it received in the second quarter and the quoted rental rates even increased yet again to a recent record high. New sales and construction projects have also kept the market quite busy, while indicating a healthy, growing economy.

Let’s take a look at all the activity that took place throughout the third quarter in the Central PA industrial real estate market!

Select Year-to-Date Deliveries:

Three of the top 10 Select-Year-to-Date Deliveries were delivered into the Central Pennsylvania submarket in third quarter 2015. The Nordstrom Distribution Center sits at the top of the list. This project began in first quarter 2014 by developer H & M Company, Inc. and contributed an RBA of 1,142,000 square-feet. It is 100% occupied. In spot number four, Prologis Carlisle – Building I delivered 1,029,600 square-feet of industrial space to the market and is not currently occupied. Finally, the project at 1 Ames Drive, Carlisle delivered 595,000 square-feet of space and is also not currently occupied.

Select Top Under Construction Properties:

Three new construction properties broke ground this quarter in the Central Pennsylvania area. In Union Township, Lebanon County, MRP Realty broke ground on their 500,000 square-foot project located at 575 Old Forge Road. It is expected to be delivered in first quarter 2016. The Susquehanna Logistics Center also broke ground this quarter and will deliver 423,300 square-feet to the market in first quarter 2016. Finally, a project at 196 Kost Road, Carlisle broke ground and will deliver 483,990 square-feet in fourth quarter 2015. None of these projects are currently pre-leased.

Select Top Sales:

Three of the select top sales from third quarter 2015 occurred in the Central Pennsylvania submarket. Ranking number two on the list, the Carlisle Pike Distribution Campus sold for $45,300,000 to STAG Industrial Management, LLC. Ranking number three, the Harrisport Business Center in Middletown sold to American Capital Corporation for $43,466,000. And ranking number four, SK Realty/HSRE PA Industrial Portfolio in Mechanicsburg sold to High Street Realty Company for $39,250,000.

Absorption and Demand:

Net absorption remains in the black, but has decreased since last quarter. The market absorbed 1,279,455 square-feet this past quarter, compared to second quarter’s 2,688,332 square-feet. Still, net absorption serves as an overall indication of a healthy economy considering we have not seen a negative net absorption since second quarter 2013

Vacancy:

Looking at the Central Pennsylvania submarket, vacancy rates have popped back up to 5.0% in third quarter 2015. This is a 0.5% increase from the previous quarter’s 4.5%. The industrial market’s vacancy rate is back to where it began the year in first quarter 2015, but it is still lower than previous years’ which have spiked as high as 8.4%, such as in fourth quarter 2011.

Rental Rates:

The quoted rental rate continued to increase this quarter by a total of three cents. Currently at $4.09, this is the highest quoted rental rate the Central Pennsylvania submarket has seen since prior to fourth quarter 2011. It is also only the second quarter that it has been in the $4 range during that time.

Our Summary/Analysis:

Third quarter 2015 was a critical moment for the industrial real estate market in Central Pennsylvania. After experiencing a burst of growth in second quarter 2015, specifically with its increase in net absorption and quoted rental rate, it could be anticipated that the market would flux a bit downward in the following quarter. Rather, third quarter 2015 did a good job maintaining this trend to a reasonable degree. Even with a lower net absorption rate, comparatively, the recent record high rental rate balanced the positive with the negative. Overall, the local industrial real estate market continues to be very favorable for businesses, landlords and developers.